Distribution of wealth and income

December 16, 2011

Visualize 100 chairs lined across a stage and 100 people congregating behind them. Each chair represents 1% of total wealth in society and each person 1% of the population. In an equal system, each person has a chair. How are the chairs allocated in the United States? Most people know that inequality is high but few realize how outrageously stark it really is. To demonstrate how the invisible hand allocates ownership in the US, we start by asking 50 to sit in just three of the chairs. That’s right – the bottom 50% have only 3% of total wealth. We next give three additional chairs to another 10 people so that we have 60 crammed into six chairs. Continuing with our market allocation, we give four additional chairs to the next 10, disposing now of 70% of the population and just 10 chairs. We’ve now reached the top 30% and still have 90% of wealth to distribute. But even at this elevated strata, the next 10 people will not receive a full chair each; they need to cram into just seven. 80 of our 100 people are crammed into 17 chairs and only now do we reach a stage in which each person gets a full chair – 10 of the remaining 20 people are awarded 13 chairs. We’re at the top 10% now and there’s 70 chairs left. The top 10% control 70% of wealth, the bottom 90%, conversely, only 30. 12 chairs are given to the next five lucky people, a bit over two chairs per person. Only five people remain and there are still 58 chairs. The next four get 25, a bit more than six each. And finally, the sole remaining person gets the remaining 33. The top 1% has more wealth than the bottom 90%!

This is how wealth is distributed in the United States and it’s little different than the way its been distributed throughout almost all of human history spanning thousands of years. History is sadly little more than a story of endless elite parasitism. The threat / reality of communism and labor militancy in postwar Europe and Asia resulted in a somewhat more egalitarian structure in most, but not all, of those countries. Whereas the top 10% in the US own 70%; here’s how their counterparts are doing: China 41%, Denmark 76%, France 61%, Germany 44%, Japan 39%, Sweden 59%, Switzerland 71%, and the UK 56%. All figures are certainly understated as we don’t know how much is hidden “offshore”.

What is wealth? Wealth is ownership, power, and control. Ownership of the means of production, ownership of the means of communication, and ownership of much of the political system. We don’t see the distribution of wealth reported as often as the distribution of income but I think when it comes to the state of our democracy, it’s far more meaningful. The top strata “owns” the technology and productive forces of society and through such ownership has the power to parasitically extract resources. The rate of extraction is determined both politically and economically; politically through past and current struggles, and economically through laws that ultimately link realized profit with the wage. But the parasite – host relationship is far more important as far as power goes than the extraction rates permitted in a particular era. A focus on income distribution seems too limited as it tends to direct efforts toward alleviating some of the ills of excessive parasitic extraction while leaving the parasite in place. A focus on wealth distribution, in contrast, tends to favor strategies that seek to eliminate the parasite itself once and for all.